Glossary

E

Earned Income

Money received for work performed; may include salary,
wages, tips, professional fees, commissions, etc.

Easy-Money Policy

Monetary policy designed to stimulate the economy by increasing the level of bank reserves through lowering the discount rate, lowering reserve requirements or buying securities through open market operations.

Economic Development

The process of improving the quality of human lives through raising living standards. Economic development is broader than economic growth, which is concerned with year-to-year increases in production. Economic development deals with the economic, social and political institutions that govern the way the economy and society function.

Economic Efficiency

A situation in which no one in a society can be made better off without making someone else worse off.

Economic Equity

The application of our concepts of what is "fair" or "unfair" and what is "right" or "wrong" to an economic policy. Ultimately deals with the distribution of income and wealth.

Economic Freedom

The freedoms of the marketplace--the freedom of consumers to decide how they wish to allocate their spending among various goods and services; the freedom of workers to choose to change jobs, join unions and go on strike; the freedom of individuals to establish businesses and to decide what to produce and when to change their pattern of production; and the freedom of savers to decide when and where to invest their savings.

Economic Functions of Government

In a market economy, government agencies establish and maintain a legal system to regulate both commercial and social behavior, promote competition, respond to market failures by providing public goods and adjusting for externalities, redistribute income and establish macroeconomic stabilization policies. To perform these functions, governments must shift resources from private uses by taxing and/or borrowing.

Economic Growth

An increase in real output as measured by real GDP or per capita real GDP.

Economic Incentives

Factors that motivate and influence the behavior of individuals and organizations, including firms and government agencies. Prices, profits and losses are important economic incentives in a market economy.

Economic Institutions

Organizations such as households and families; formal organizations such as corporations, government agencies, banks, labor unions and cooperatives; a system of law; customary ways of doing things such as the use of money, collective bargaining and the observance of certain holidays; and controlling values and beliefs.

Economic Loss

Total revenue is less than total costs when total costs include all opportunity costs.

Economic Profit

A firm's total revenue minus all explicit and implicit costs of production, including opportunity costs.

Economic Security

Protection against economic risks, such as unemployment, accidents on the job, business failures or natural disasters, over which people have little or no control.

Economic Systems

The institutional framework of formal and informal rules that a society uses to determine what to produce, how to produce and how to distribute goods and services.

Economic Wants

Desires that can be satisfied by consuming a good or service. Economists do not differentiate between wants and needs.

Economic Way of Thinking

A reasoning process that involves considering costs as well as benefits in making decisions.

Economics

The study of how people, firms and societies choose to allocate scarce resources with alternative uses.

Elasticity of Demand

Price elasticity of demand is the percentage change in quantity demanded as a result of the percentage change in demand price. Generally, a relative response of a change in quantity demanded to a relative change in price.

Employment and Unemployment

A general increase in the price level.

Employment Rate

The percentage of the total population aged 16 or over that is employed.

Entrepreneur

One who draws upon his or her skills and initiative to launch a new business venture with the aim of making a profit. Often a risk-taker, inclined to see opportunity when others do not.

Entrepreneurs

Entrepreneurs are willing to risk their own resources in order to sell them for financial gain or profits. Entrepreneurs are successful when they provide consumers with goods and services that consumers highly value. Financially successful entrepreneurs have some common characteristics. First, they are willing to assume risk, and high risk can lead to high rewards. Second, entrepreneurs have unique skills that help them develop new products or new cost-cutting production methods or new ways to serve consumers. Third, many entrepreneurs also have the discipline to work long and difficult hours to achieve their goals. These same entrepreneurial characteristics can help anyone to be successful even one who doesn't start a business. If you want to earn more income, develop valuable skills and use them in ways that are highly valued by others.

Entrepreneurship

A characteristic of people who assume the risk of organizing productive resources to produce goods and services; a resource.

Equilibrium Price

A price at which the quantity demanded by buyers equals the quantity supplied by sellers; also called the market-clearing price.

Equilibrium Quantity

The quantity demanded and quantity supplied at the equilibrium or market-clearing price.

Equity

Stock, both common and preferred—as in "I prefer to invest in equities rather than bonds." Also the value of mortgaged property after accounting for charges against it or money owed — as in "Sarah has built up $40,000 worth of equity in the home she bought five years ago."

European Union (EU)

An association of European nations created by the Maastricht Treaty signed in 1992. The EU has eliminated quotas and tariffs among its members and created other common economic policies.

Excess Reserves

A bank's cash reserves beyond the required reserves, which can be loaned.

Exchange

Trading a good or service for another good or service, or for money.

Exchange Rate

The price of one nation’s currency in terms of another nation’s currency.

Expansionary Fiscal Policy

An increase in government spending and/or a decrease in taxes designed to increase aggregate demand in the economy, thus increasing real output and decreasing
unemployment.

Expenses

Payments for goods and services.

Explicit Cost

The monetary payment a firm must make to obtain a resource.

Exports

Goods and services produced in one nation and sold in other nations.

Externalities

Economic side-effects or third-party effects, in which some of the benefits or costs associated with the production or consumption of a product affect someone other than the direct producer or consumer of the product. Can be positive or negative.